Kmart has agreed to pay $32.3 million to settle allegations that it overcharged federal health programs by failing to report the true prices of prescription drugs.

The settlement arose from a 2008 whistleblower lawsuit brought by James Garbe, a pharmacist at a Kmart in Ohio who discovered that the retailer was charging Medicare customers significantly more for generics than it was charging customers enrolled in its cash discount program.

Medicare Part D, Medicaid, and TRICARE require pharmacies to bill the lowest price offered to cash-paying customers. According to Garbe’s complaint, Kmart sold a 30-day supply of a generic version of a popular prescription drug for $5 to customers who registered for a discount program but billed the government $152 for Medicare customers.

“Pharmacies that are not fully transparent about drug pricing can cause federal health programs to overpay for prescription drugs.” Chad A. Readler, acting assistant attorney general for the Department of Justice’s Civil Division, said in a news release.

“This settlement should put pharmacies on notice that there will be consequences if they attempt to improperly increase payments from taxpayer-funded health programs by masking the true prices that they charge the general public for the same drugs,” he added.

The settlement agreement with the federal government is a part of a global $59 million settlement that will pay additional sums to Medicaid-participating states and private insurers. Garbe will receive $9.3 million — or 29% of the federal government’s recovery — under the whistleblower provisions of the False Claims Act.

Garbe’s attorneys litigated the “qui tam” case on their own after the Department of Justice declined to intervene.

“The settlement shows we were right to continue to pursue the case on behalf of taxpayers, despite the government’s decision not to join the qui tam lawsuit,” said attorney Erika A. Kelton, a partner at Phillips & Cohen. “Not only did we recover funds for taxpayers, we also stopped a practice that would have been an improper drain on government healthcare funds.”

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